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Cushman & Wakefield - European Commercial Property Investment
19 Jan, 2012, EMEA
VOLUMES TO HOLD FIRM IN 2012 BUT IN A CAUTIOUS AND DIVIDED MARKET
- Commercial property investment volumes rose by a better-than-expected 17.7% in the final
quarter of 2011 to reach €36.8bn, taking volumes for the year to €126.2bn, 7.8% up
- Foreign investors were the main driver of this, increasing activity by 16.2% over the year
versus a 3.6% rise for domestic buyers, and raising their market share to 35.8% from 33.2% in
- Investors have continued to show a strong interest in core markets, with the UK, Germany
and France by far the most in demand, taking 61.4% of all investment for the year.
- Winning market share from the PIIGS was relatively easy - with these markets seeing volumes
fall 25.9% over the year versus 17.7% growth for the rest of the Eurozone.
- The best growth in activity was in emerging markets: 7 of last year's top 10 growth markets
were in Central & Eastern Europe: Bulgaria, Estonia, Slovakia, the Czech Republic, Hungary,
Russia and Croatia, with only Switzerland, Denmark and France from the West appearing in the
- Risk appetites did change markedly as the year went by however. CEE markets saw volumes
rise 75% over the year while Western markets grew by just 2.8% but between the first and second
halves of the year Western volumes rose 19.7% while CEE volumes were flat at 0.1% as buyers
grew more cautious with the Eurozone debt crisis picking up.
- Despite this, Central Europe in particular had a good year - with volumes up 115.7% and a
market share of 4.7%, its strongest on record, as investors adjusted their views on the real
level of risk in these markets and also set about trying to find markets with stock and growth
- Volumes overall were flat in the Nordic region, with demand good but little supply at the
price investors wanted to pay. Only Finland saw a decline in volumes however, with the other
non-Eurozone Nordics all seeing some level of growth, notably Denmark.
- All sectors have been in demand, with industrial markets gaining most as volumes rose 24.5%
and its market share hit 9.4%. Offices saw volumes rise 11% and its market share reach 44%
while retail saw just a 3% increase and its market share dropped modestly from 33% to 32%.
- Demand for retail has been good nonetheless, with investors seeing it as a defensive asset,
but supply of the right type of retail continues to run below demand and a lack of finance for
large lots has also held activity back. The UK has regained its crown as Europe's largest
retail market - which Germany took for part of last year - while France was runner up to the UK
as the region?s largest office market, taking over from Germany which fell back to number
According to Michael Rhydderch, Head of the European Capital Markets Group at Cushman &
"It is clear that there is a lot of nervousness out there and sheer uncertainty may hold
back dealing volumes this year. At the same time however the volatility we are seeing in other
asset classes as well as the relative level of property yields is serving to stoke up demand
for the best assets in defensive markets. With some new equity coming into the market and some
on the sidelines likely to get more motivated, we're anticipating turnover holding firm for the
year at something like €123-128bn, despite the issues in the debt markets."
With bank deleveraging to pick-up, getting hold of affordable debt will be an issue for all
except the top tier of borrowers with the best asset backing but current conditions will also
lead to more opportunities according to Rhydderch. "The volume of loan maturities is set
to rise this year and a lot can?t or won?t be refinanced. This will inevitably result in more
stock coming onto the market."
"On the demand side, large pension and sovereign funds from around the world will
remain hungry for prime assets in core markets, with North American and Far Eastern funds again
dominant. Private equity will also be a key player this year at typically higher risk levels,
while private individuals from Europe, Asia and the Middle East are likely to be strong across
a range of risk levels. However, all players will need to look closely at which markets and
sectors they are targeting; we expect there to be an adjustment to pricing and/or risk
tolerance by many in order to meet their buying objectives."
"Distressed markets may offer the best high return opportunities in 2012 but strong
interest in core markets will continue and the best should deliver stable and possibly improved
values. Indeed yields still look relatively attractive and could fall. Good prospects meanwhile
will be seen in areas such as the Nordics where economic growth is above average and market
risks low, or in parts of CEE where economic growth is expected to hold up, notably Poland and
Russia and possibly Turkey," concluded Rhydderch.
According to David Hutchings, Head of European Research at Cushman & Wakefield,
"The hallmark of the year is likely to be whether or not the economy and the property
market can recover its confidence."
"The Eurozone crisis is clearly not going away any time soon and alongside this we have
more austerity, a squeeze on liquidity and the start, hopefully, of more serious reforms. Not a
recipe for great certainty but amidst all that, a full-scale breakup of the Eurozone in 2012
still looks unlikely given the cost to those leaving as well as those left behind. In fact the
jigsaw pieces of a solution may soon start to come together and if so, this could be the key to
greater confidence and helping Europe to get its mojo back."
"However, in truth no one yet knows how the sovereign debt crisis will play out and
what's more, if 2011 taught us anything it is that some of the biggest challenges of the year
may not even be known about yet. As a result, as investors build up their portfolios, the more
successful will recognise that risk management requires diversification not just core holdings
in a small number of low risk markets. A rising ride of investment could therefore steadily
spread to new markets later in 2012 - albeit not reaching as far as secondary shores for some
little while yet."